EU Markit PMI Preview: positive numbers could give the EUR a temporal boost

• European advanced Markit PMI seen recovering for a second consecutive month.
• EUR/USD bearish trend remains firmly in place, data won't be enough to change it.

This Thursday, Markit will release the preliminary estimates of EU indexes related to growth in the manufacturing and the services sector. Given that slowing economic growth in the euro area has been one of the main reason behind the EUR's fall this year, the reports, particularly these flash ones, tend to have a relevant effect on the shared currency.

Special attention is given to the indexes of Germany and the whole Union. The EU Manufacturing PMI fell into contraction territory early this year, bottoming at a six-year low in March to bounce just modestly to 47.9 in April. May's forecast stands at 48.1, improving, yet still in contraction territory. The services sector is in better shape, as the EU index is seen at 53.0 vs. the previous 52.8, while the Composite PMI is forecasted at 51.7 from 51.5 in April.

For Germany, the Manufacturing index collapsed to 44.1 in March, and over six-and-a-half years low, bouncing 44.4 in April. May's flash figure is foreseen at 44.8. The services PMI is expected at 55.5, down from the previous 55.6, while the Composite PMI is forecasted at 55.5, down from April's final 55.7.

The downturn in operation conditions was also huge in Italy and France, although German's output was the one deteriorating to the largest degree. Germany is the biggest EU economy, therefore having a more relevant impact on the common currency than Italy or France, although the negative numbers in these last add to the dismal situation.

The recovery in manufacturing output from multi-year lows have been quite shallow, and the indexes still stand in contraction territory. However, better-than-expected numbers may have a positive effect on the common currency.

EUR/USD Technical Outlook

The EUR/USD pair heads into the event not far from the multi-year low, established at 1.1110 last April, and with the long-term bearish trend firmly in place. The pair has spent the last four weeks consolidating between such low and 1.1264, being this last, the first level to surpass to consider a bullish continuation. A descendant trend line coming from September 2018 high at 1.1814, is located this week at 1.1308, which means that the bullish case could return once above this last.

The data about to come won't be enough to push the price beyond this last, which means that any advance triggered by positive numbers could be just temporal.

The main support is the mentioned yearly low at 1.1110, with a break below it exposing the 1.1060 region, while if this last gives up, a test of the 1.1000 figure is on the cards. Such a bearish extension seems more likely in the current risk-averse scenario, although it would also depend on how the market reacts to FOMC Minutes, to be out ahead of European PMI.

A test of 1.1000 seems possible, although a break below it seems quite unlikely due to the strength of the psychological support.